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An investor sits in front of displays showing stock information at a brokerage office in Beijing, China. Oct. 11, 2018.THOMAS PETER/Reuters

Initial hopes that the stock market would stabilize after Wednesday’s sharp sell-off were dashed on Thursday: U.S., Canadian, Asian and European stocks slid further, contributing to the most challenging atmosphere for stocks since February and raising questions about how long the rout will last – and how deep it will go.

The latest moves suggest that stocks are caught up in a swell of concern over U.S. Federal Reserve interest-rate hikes, rising borrowing costs and the threat of shrinking profit margins, at a time when investors are awaiting third-quarter financial results from U.S. companies. JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. will shed some light on the earnings trend when they report their results on Friday.

These concerns are reverberating worldwide. The S&P 500 fell 57.32 points, or 2.1 per cent, to 2728.36, one day after registering its worst decline in eight months. The Dow Jones Industrial Average fell 545.91 points or 2.1 per cent, to 25,052.83 − bringing its two-day decline to more than 1,300 points.

In Canada, the S&P/TSX Composite Index fell 200.27 points or 1.3 per cent, to 15,317.13. Britain’s FTSE 100 fell 1.9 per cent and Japan’s Nikkei 225 fell 3.9 per cent.

Though the retreat looks like a blip next to mostly encouraging returns in recent years, especially in the United States, it is adding up to a noteworthy decline: The S&P 500 is down a total of 6.9 per cent from its record high in late September.

What’s going on? Here’s a look at some of the moving parts.

Greatest hits: Anything exposed to the economy

The sharp decline of the S&P 500 has provided plenty of shocking gore for headline writers. But it looks even worse when you examine some of the hardest-hit sectors over the past several trading days. Information technology stocks are down 8.2 per cent since Oct. 3. Consumer discretionary stocks are down 7.4 per cent, materials are down 7.1 per cent and industrials are down 6.1 per cent. What binds these laggards together: They are among the most economically sensitive sectors within the S&P 500, suggesting that the market is souring on the nine-year-old economic expansion.

Kicking Canadian energy when it’s down

Canadian oil and gas already had plenty of downward momentum before this week’s sell-off. As the energy transportation system has struggled to handle existing production, and with pipeline expansion plans bogged down by regulatory impediments, prices for Canadian crude oil have been crushed. The discount on Western Canadian Select against the main U.S. crude benchmark has widened to more than US$50 a barrel, which has some producers revisiting expansion plans. Investor sentiment has turned increasingly bearish. Since mid-July, oil and gas producers in the S&P/TSX Composite Index have fallen 15 per cent, including a 9-per-cent slump over the past five trading days.

Looking for safety? Gold is doing its job

Investors have turned to an old standby in their pursuit of havens. Gold rose nearly 2.6 per cent Thursday. Why? It had been battered by improving economic activity and rising stock markets over the past seven years, making it look appealing when these conditions shift.

Pot stocks not big enough to offset TSX losses

Is it any surprise that the three best-performing stocks within the S&P/TSX Composite Index over the past 12 months are pot stocks? Despite crazy amounts of volatility, Canopy Growth Corp., Aurora Cannabis Inc., and Aphria Inc. have held up reasonably well during this week’s turbulence and sit atop the Canadian stock leaderboard over the past year as investors have clambered for exposure to the cannabis sector in advance of legalization. These three pot stocks have risen between 40 per cent and 65 per cent over the past three months alone. However, three pot stocks have little sway over the $2.2-trillion Canadian benchmark index.

The FAANG scare spreads north

The so-called FAANG stocks – Facebook Inc., Inc., Apple Inc., Netflix Inc. and Alphabet Inc.’s Google – have been leading the S&P 500 higher this year, raising concerns that the index was firing on a single, vulnerable cylinder. The FAANGs were natural targets for fearful investors, which is a sentiment that seems to have caught on in Canada, as well. Canadian tech stocks, a dozen names adding up to less than $90-billion in market value (or about 6 per cent of Apple Inc.’s market value), aren’t exactly driving the market. But up until this summer, companies such as Shopify Inc. and Constellation Software Inc. were some of the best performers on the S&P/TSX Composite Index for the year. And over the past week, Canada’s tech sector has fallen 6 per cent.

Rising bond yields drove stocks down on Wednesday; now bond yields are retreating… and stocks are down again

If you were looking for a cause of the recent market turbulence, the bond market offers an easily identifiable villain: The yield on the 10-year U.S. Treasury bond rose to fresh seven-year highs this week, reflecting inflationary pressures and raising concerns about borrowing costs. Funny thing is, higher bond yields are now tempting investors as the downturn in stocks deepens. The 10-year bond yield retreated to 3.15 per cent on Thursday as bond prices rebounded. One reason? Inflationary pressures appear to be subsiding: The U.S. consumer price index for September was just 0.1 per cent higher than August’s reading, and lower than economists’ expectations. Another reason? With stocks down, bonds seem to be a safe bet, for now.

What to watch for: Things could get worse if stocks and bonds fall together

RBC Dominion Securities believes that markets are trapped between a classic “risk-off” downturn (where investors flee from risky assets and into the arms of safer assets) and a more dangerous “twin bond/equity sell-off” (where stocks and bonds both decline). “Which of the two wins out should determine how long the equity sell-off lasts,” Elsa Lignos, head of FX strategy at RBC Dominion Securities, said in a note.

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